Friday, 19 April 2013

The Nation's Credit

A Précis of Major C. H. Douglas's Proposals
by C. G. M.

Published by THE BRITISH SOCIAL CREDIT SOCIETY
63a DOMESTIC STREET, LEEDS 11 ENGLAND

FIRST PUBLISHED: January 1932 for the Credit Study Group
REVISED PUBLICATION: September 1967
The Publishers wish to thank the Author for permission to
republish his booklet and for additions and amendments in bringing it up
to date. They also wish to acknowledge the help and assistance given by
the original publishers: The C. W. Daniel Co. Ltd, of Ashingdon,
Rochford, Essex.

CONTENTS:

(A) THE PRESENT SITUATION
(B) THE REMEDY
(C) THE PHILOSOPY OF SOCIAL CREDIT
APPENDIX

(A)
THE PRESENT SITUATION

1. The inventions of the past 180 years have enormously increased
man's power of producing wealth (i.e., goods and services). Machinery,
steam, oil,
electricity, modern communications and organization have changed an
eighteenth century world of comparative shortage into a twentieth
century world of
potential plenty. Industry (the word "industry" is here used in
its broadest sense—to include all manufacturing processes,
agriculture, public and private services, etc.) can today produce and transport all the necessities, and most of the luxuries, that we require, in abundance.
2. At the same time the problem of poverty remains to be solved.
The goods are there, people want the goods, but they are unable to
obtain them to the
extent they want. In other words, it is not a problem of
over-production, but of under-consumption.
3. Therefore, our means of distribution are at fault. The device by
which the goods and services produced by industry are distributed to
those who want them
is money. Money, then, is the essential link between production and
consumption.
3. Therefore, our means of distribution are at fault. The device by
which the goods and services produced by industry are distributed to
those who want them is money. Money, then, is the essential link between
production and consumption.

4. Nearly all the money used by industry to-day is "credit," i. e.,
cheque money. Coins and banknotes are only the small change of society.

5. There is no physical limit to the amount of credit that can be
created, and there need be no technical limit so long as credit and
goods keep step with each other. Credit comes into existence in the form
of loans, overdrafts, discounting of bills, and purchase of securities
by the banks. "Every loan creates a deposit, and every repayment of a
loan destroys a deposit" (McKenna, Midland Bank). The banks have the
monopoly of creating credit, which they do by merely writing figures in
their ledgers. They issue it to whom they choose, when they choose and
for as long as they choose. They decide absolutely the amount of money
there shall be in existence at any time, i. e., they control the link
between production and consumption. (The fact that the banking
system controls the issue and cancellation of credit can be verified by
reference to the Macmillan Committee Report (1931), H. M. Stationery
Office, page 34, Section 74, and such standard works as "The Theory and
Practice of Banking" by H. D. MACLEOD, and "Currency and Credit" by R.
G. HAWTREY.
6. Owing to the system by which credit is issued and destroyed by
the banks a situation has arisen in which the prices of all the goods
and services produced by industry are always greater than the money
available in the pockets or bank accounts of the public. The joint
incomes of the public are now not even sufficient to buy all the
consumers' goods (i. e., those goods and services which we all want for
personal use) which can be produced. (Reasons for this state of affairs are given in the appendix to this pamphlet.)
7. Taking token figures (these figures are used merely to
illustrate the discrepancy between incomes and prices, which in normal
times persists. They do not mean that the gap is invariably of the order
of £150) the present situation is that at any time the total
incomes of the inhabitants of this country are £100, whilst the total
prices of goods are £250. That is, prices exceed incomes by £150, and in
consequence £150 worth of goods cannot be bought in this country. Every
other industrialized nation is similarly situated, i. e., they all have
a greater or less surplus of goods which their own citizens cannot buy.
8. Neither inflation nor deflation can cure this state of affairs.
If more money is issued as loans to industry or the public services,
prices rise in proportion to the larger incomes distributed, since the
loan money must be accounted in the costs of the products. If money is
withdrawn from circulation prices fall, but so do incomes. In both cases
there still remains the discrepancy between total prices and total
incomes.
9. Each industrialized nation must sell its "£150 surplus"
somewhere. As it cannot sell it at home, it has to try and sell it
abroad. But industrialized nation A cannot to any extent buy the surplus
of industrialized nation B since it is unable to buy its own surplus.
Therefore, it tries to sell its surplus to the less highly­ developed
nations of the world (e. g., Africa, China); but so do all the other
industrialized nations. Failure to do so means national bankruptcy,
enormous unemployment, and probably revolution. Therefore each
industrialized nation competes frantically with its neighbour for
foreign markets.
10. This competition between industrialized nations to get rid of
their surplus production is literally a life and death struggle. The
logical outcome of this "peace" struggle is WAR. In war time there is
not the same pressing necessity to sell the surplus abroad; it is
distributed free to the enemy in the form of shells, etc.
11. It should be particularly noted that this competition to sell
surpluses abroad is quite distinct from legitimate foreign trade. The
former arises only because the surplus goods cannot be bought in the
home market. The latter is a simple exchange of goods, which nation A
can buy, but does not require, for goods, which nation B does not want,
but which A does.
12. If civilization is to survive we must solve this one
fundamental economic problem: how to distribute the goods which can be
produced in such abundance. Otherwise we are threatened with the
ludicrous fate of starving in the midst of plenty, or destroying
ourselves in a greater world war.
13. The crux of the situation is the present financial system. It
is the bottle-neck between the goods, which are there and the people who
want the goods. Money should be subordinate to production and
consumption; as matters stand to-day industry and the consumer are
subordinate to money. The tail is wagging the dog!!
14. This is caused by the fact that money is issued and destroyed
by the money-monopolists (the bankers) at a false rate: at a rate that
suits their trade as dealers in money. Like all monopolists, they seek
to increase the value of their wares by keeping them in short supply. By
their absolute control of money the bankers control in principle all
industry and all consumption (i. e., the standard of living of the whole
community). They also control the political government, which can only
carry on the services of the nation with money borrowed from the banks.
Consequently the banking system is to-day the real government of this
and every other country.
15. The banks do not own the nation's credit, although they act as
if they did. They create it and account for it, but it is not their
property. The only real basis of credit is the nation's power of
producing goods and services, using all available skill, organization,
labour, plant, etc. This belongs to the nation as a whole. At present it
is hypothecated by a group of private trading companies (the banking
system),* responsible to no one but their own shareholders. *(Since
this was first written, the Bank of England has been nationalized, and
is in effect a Government Department, which makes it all the more
fantastic that the Government should 'borrow' the money they require
from one of its own departments at a high rate of interest; this
interest being paid by the Taxpayer.)
16. As Douglas has observed, a bank "loan" is about the only
instance of "lending" something you haven't got and making a profit on
the transaction; the loan money not belonging to the bank anyway, and
having been obtained free in the first instance.
17. A great deal of rubbish is talked about these bank loans. They
are not 'loans' at all. If I lend Smith £100 I go without the use of the
money till he pays me back. If a bank 'lends' Smith the same sum it
creates the £100 at the moment of lending it, and in effect does not go
without anything.
18. Much heavy propaganda is used about the 'Taxpayer's Money' as a
reason why something cannot be done. This is a dishonest attempt to
suggest that all new money originates with the general public. As we
have seen this is not so. The only part played by the public under the
present system is being compelled to pay via taxation an exhorbitant
interest for the use of their own credit created by the banks.
19. In short the present situation is one of GRAND USURY. In the
spacious days of Edward I, at the end of the 13th century, a law was
passed forbidding usury. A conviction entailed the loss of the usurer's
nose, or ears, or both. The complaint against the moneylenders of those
days was that they charged too high a rate of interest for their loans,
which however came from their own reserves.
To-day's moneylenders (mainly the banks) do not labour under these
disadvantages. Not only are their noses and ears safe, but they do not
risk their own money as loans; by monetizing the Nation's Credit, and
pretending that the money belongs to themselves, they in effect control
all our lives.
20. All this of course does not mean that the banks are
unnecessary. Not only do they perform many useful services for
institutions and individuals but their help would be required in
connection with the remedy suggested in Section B, below.
For this they are entitled to adequate payment.

B)

THE REMEDY

21. We have seen that our present troubles arise because the public
in this country (and in all other countries) has not the money to buy
the goods, which are there and which they want, at the prices which
industry must charge. The problem is to make a £100 income buy
commodities priced at £250.
22. The solution is to ensure that incomes and prices are always equal to each other.
23. One method by which this can be done is to sell goods to the
public below financial cost and to make up the remainder of the price of
the goods to the retailer by money specially created for the purpose by
the State, i. e., again taking our token figures, the public would pay
£100 for the goods, and the other £150 would be refunded to retailers by
the State.
24. As a result the public would get the goods they want at less
than financial cost; i. e., their purchasing power would be greatly
increased. The retailers would recover the full financial cost of their
goods (including their profit) partly from the public and partly from
the State. They would then repay wholesalers, who would repay
manufacturers, who would repay the banks the loans by which the
manufacturing process was initiated. The latter would then cancel the
money representing the loan, as they do at present, except that this
cancellation would only take place after the goods, which the loan has
brought into existence, have been consumed (i. e., bought by the
public).
25. Two questions naturally arise. Where is the £150 to come from;
and what is to decide the fraction of cost at which retailers will sell
their goods to the public?
26. Nearly all money, as we have seen, is to-day financial credit;
i. e., merely figures written in books. In the past this credit was
limited by the gold in circulation and in the reserves of the Bank of
England. This limitation has now ceased to operate in this country. We
have the opportunity to use a better basis for our credit than gold. The
most obvious basis is the real wealth of the nation; i. e., the goods
already produced and the nation's capacity for producing more goods.
This basis has the advantage over gold that it reflects physical facts,
and would be in addition an automatic regulator of our supply of money.
27. Our power of producing goods greatly exceeds our power of
consuming them. Only a fraction of the goods we can produce are goods
for personal consumption. The remainder (such as factories, machinery,
railways, roads, etc.) are not bought by individuals, but are means for
producing future consumable goods. All these are the real credit of the
community, and it is on this basis that the £150 mentioned in paragraph
25 would be created.
28. We have, therefore, to make our financial credit an exact
reflection of our real credit. If net production increases, our money
will increase; if it decreases, our money will decrease.
29. Next, what is the fraction of financial cost at which retailers
will be asked to sell goods to the public? Putting aside the question
of money, the real or physical cost of any undertaking is the amount of
things used up or consumed in the process. In other words, the real cost
of production is consumption. For example, the real cost under all
conditions of growing an ear of corn is the seeds from which it grows.
30. Relating this fact to financial cost, we can say that the JUST
PRICE (i. e., the price at which retailers should sell to the public in
order to reproduce the physical facts of production and consumption) is:
Total National consumption
−−−−−−−−−−−−−−−−−−− X financial costTotal National production
31. An example may illustrate this. Suppose it is decided to
introduce this system on 1st January of any year. It would first be
necessary to ascertain the figures for total national production and
total national consumption measured in terms of money for the previous
period of, say, six months. Imagine that the ratio between these two is
found to be 5 : 2. Then the JUST PRICE of consumers' goods during the
six months following 1st January would be 2/5 of their financial cost,
calculated on the average price level for, say, the preceding year. That
is, consumers could buy goods from retailers at 2/5 of the usual price,
and
retailers would be reimbursed the remaining 3/5 by the State, the
money for the purpose being created against the real credit of the
nation.
32. No question of inflation could arise, as prices would be automatically regulated by the 'price regulating factor,' i. e.,consumption
----------
production
33. No legal compulsion would be necessary. Retailers who would not
accept the JUST PRICE scheme would be free to sell at the ordinary
financial price,
but in that case they would receive no money from the State and
would have to try and sell their goods in competition with others, who
had accepted the
JUST PRICE and were in a position to undersell them.
34. As a result everybody's money would buy more. Industry would be
correspondingly stimulated, and before long would be working at full
pressure.
Unemployment would temporarily cease, and a much higher standard of
living for all would be ensured.
35. The position as regards the value of the pound sterling in
relation to the dollar, the franc, etc., would be this: the foreign
exchange value of the pound, apart
from gambling in exchanges, which has only a temporary effect,
depends ultimately on the price level ruling in this country. If the
purchasing power of the pound is increased, as would be the case under a
Social Credit regime, the pound will buy more goods in this country,
or, in other words, the price level will be reduced. As foreign
merchants tend to buy in the
cheapest market, there would be a rush by foreigners to buy British
goods at the reduced price. In order to do so they must obtain pounds
for their dollars,
francs, etc. An increased demand for pounds with which to buy our
cheapened goods would cause the foreign exchanges to swing heavily in
our favour. It
would then become an administrative question whether to allow the
foreigner to buy our goods at the JUST PRICE or at any fraction of cost
between this and
full financial cost.
36. After the JUST PRICE had been in operation for some time there
would undoubtedly come a moment when all the necessary production of
this country
could be carried on by only a fraction of the working population
aided by the latest machinery. In other words, the work of everybody
would not be wanted for
the necessary programme of production.
37. It would then become necessary, if only to ensure that the
goods produced were distributed, to allot to every member of the
community, worker and non­
worker alike, a dividend or share in the amount of goods produced.
This could conveniently take the form of money, based also on the real
wealth of the
nation. In addition to this dividend, those who were required to
work would receive a reward for their services in the shape of wages,
salaries, profits, etc., as
at present.
38. The immediate results of selling goods at the JUST PRICE, and
later distributing a national dividend to all, would be the abolition of
poverty, the reduction of the likelihood of war to zero, rapidly
diminishing crime, the beginning of economic freedom for the individual,
and the introduction of the "leisure state." The ultimate results can
be left to the imagination of the sociologist.

(C)

THE PHILOSOPHY OF SOCIAL CREDIT

39. There are three possible purposes for an economic system:
(a) That it is an end in itself for which man exists.
(b) That, while not an end in itself, it is the most powerful means
of constraining the individual to do things he does not want to do, i.
e., it is a system of
government. This implies a fixed ideal of what the world ought to
be.
(c) That the end of man, while unknown, is something towards which
most rapid
progress is made by the free expansion of individuality, and that,
therefore, economic organization is only a specialized activity of man,
which has as its
objective the production and distribution of goods and services for
man's use.
40. Excluding (a), for which policy there are probably few
supporters, we have quite definitely to make our choice between the two
alternatives: Does an
economic system exist to enforce work; or does it exist to produce
goods?
41. There can be no compromise. If we decide that work is our
objective, we must scrap all modern machinery, etc., and go back to
hand-production.

There is no other means by which the unemployed can be permanently
absorbed into industry. If we decide that goods are our objective, we
must logically ensure that these goods are produced by the most
efficient methods, i. e., by using all the latest inventions. And if
they are produced, they must be distributed, since industry cannot go on
producing goods which are not sold to somebody.
42. Two points of view appear consciously or unconsciously to
influence those who advocate work as the objective of an economic
system:
(a) That it is immoral to give men "something for nothing."
(b) That men cannot be trusted to behave themselves unless they live under the direct compulsion to work.
43. The first point of view is a product of a classical system of
education which encourages deductive as opposed to inductive reasoning.
Deduction has the weakness of starting with a theory and subsequently
arriving at the facts, too often ignoring those facts which do not fit
the theory. It tends to be rigid and to prefer fixed to relative
morality. During ages of man's history all labour was hand labour; the
maximum production could only be ensured if everybody worked his
hardest, and those who shirked work were in fact traitors to the
community. Now, although the problem of production has been solved, the
classical mind still insists that work is in itself "moral." It would be
as sensible to argue that because it is right and expedient to ration
the water supply of a party of explorers in the Sahara desert, the same
discipline in regard to water if the party is transferred to a boat on
Lake Superior.
44. If a moral justification is required for distributing a share
of our surplus products to all members of the community it can be found
in the cultural inheritance of the race, which is one of the chief
factors of production. This inheritance consists of our natural
resources and the thousands of devices and processes, the inventions of
persons long since dead, and the property of all rather than of any
single individual.
45. The second point of view [see 42 (b)] has its origin in
fear-fear of one's neighbour; fear of the unknown. It manifests itself
in the will to power, and its reasoning is also deductive, in that it
constantly exalts abstractions at the expense of the individual. In
effect it says that man exists for institutions, not institutions for
man. It is evidenced by the increase of centralized control in all
departments of our public life, and it works by means of a system of
rewards and punishments.
46. Whether one approaches the question from the point of view of
orthodox Christianity or of pure ethics, this lust for domination is
equally anti-social. One cannot at the same time fear or distrust one's
neighbour and love or respect him as oneself. What is perhaps even more
to the point, society founded on such a basis cannot endure. All
tyrannies, which over­emphasize control as an end in itself, finally
dissolve in anarchy. The increasing importance of human co­operation for
effecting human ends makes control essential for achieving definite and
limited objectives, but it is not the way to decide how whole peoples
shall live their lives. In respect of any undertaking centralized
control is the way to do it, but is neither the correct method of
deciding what to do, nor of selecting the individual who is to do it.
47. By far the strongest force in the world at present is the
centralized power of finance. It is all the more powerful because it is
not generally recognized. Probably nine out of ten bankers have no other
motive than to retain the position of material advantage which their
business ensures them, but it seems probable that there exists a small
minority of men at the head of the international financial hierarchy to
whom profit in the ordinary sense is a secondary consideration, who are
actuated chiefly by the will to power. They aim quite definitely at a
financial hegemony of the world, and their ideal is the servile state.
48. By their monopoly of credit they determine the size of national
incomes, they control directly or indirectly all important organs of
public information (the Press, the B. B. C., etc.), and, as we have
seen, the policy of political governments. They are adept at directing
popular ideas to their own ends. For instance, the world-wide interest
in the United Nations as a safeguard against war has been focused upon
the "inter-dependence of nations," which idea, logically pursued, leads
to a centralized international government, dependent for its policy on
such bodies as the International Monetary Fund and the International
Bank for Reconstruction and Development. (The World Bank). The movement
in favour of rationalization in industry for reasons of efficiency has
received powerful support from the fact that this process tends to
supplant the small independent trader by the huge combine, which is more
easily controlled by the money interest. The attacks on the privileges
of the land-owner and the rentier aim at eliminating a class which is
potentially independent of financial control. Such superficially
opposite political movements as Fascism and Bolshevism have obtained
support from international finance because they are both examples of
centralized control.
49. The schemes for centralized financial control of the world are
all the more dangerous because their chief supporters are probably
perfectly sincere in their motives, and are, moreover, extremely able
men, who can command all the best brains which can be bought for money.
Whether these motives arise from the kind of cynicism, which led one
eminent financier to remark that Major Douglas's proposals might save
civilization, but the civilization was not worth saving, or whether they
are the outcome of a peculiar form of religious mania which envisions
an imperfect world kept together only by the divine control of
plutocracy, is an interesting psychological study. But the practical
issue is that individual freedom and real democracy are impossible until
these schemes are finally defeated. In the last resort individual
freedom cannot exist until men are in a position to choose or refuse one
thing at a time.APPENDIX
TWO EXAMPLES OF WHY THE NATIONAL INCOME CANNOT BUY THE NATIONAL PRODUCTION

A
1. Imagine industry to be one gigantic concern which produces all
goods and services. All incomes (wages, salaries and dividends) are
derived directly or indirectly from industry.
2. The goods and services produced by industry can be divided into two classes:
(a) Consumers' goods, i. e., the goods and
services which are bought by individuals for their own consumption, e.
g., a loaf of bread, a suit of clothes, a theatre ticket.
(b) Capital goods, i. e., the goods and services not
bought by individuals, but used for producing future consumers'
goods; e. g., railways, docks, roads, factories, etc.
3. Take any factory or productive organization.
The prices of all the goods produced by this firm during a given period can be analyzed under two headings:
(A) Personal Incomes, i. e., the wages, salaries and dividends drawn by the employees and share­ holders of the firm.
(B) Payments to other firms for raw materials, machinery, plant, etc.; plus overhead charges.
4. The price of the goods produced by this firm cannot be less
than A + B. But only the A incomes are available to buy these goods. The
money representing the B payments was wages, etc., spent in the past by
the recipients in order to live. It has long ago gone back to the banks
in repayment of loans and has been cancelled.
5. As A is less than A + B, it is obvious that the joint income of
employees and shareholders cannot buy all the goods they have produced.
This is true of all firms, individually and collectively, so it is true
to say of the whole nation, and of all nations, that its total income
cannot buy its total product.
6. But can the nation's total income buy all the consumers' goods available? In amplification of paragraph 3 above, let:
Al = all payments made to individuals (wages, salaries, dividends) by producers of consumers' goods and services.
A2 = all similar payments by producers of capital goods and services.
B1 = all payments to other organizations by producers of consumers' goods.
B2 = similar payments by producers of capital goods.

7. As we have seen, incomes represented by Al cannot possibly buy
goods priced at A1 + B1; neither can incomes represented by A2 buy
goods priced at A2 + B2. In the latter case it is usually objected that
they do not need to.
8. The question is: can A1 + A2 = A1 + B1? i. e., can the joint
income from consumers and capital goods buy all the available consumers'
goods? They can, if A2 = B1. If A2 is greater than B1, prices of
consumers' goods will rise; if A2 is less than B1, prices of these will
fall; and if the fall continues, bankruptcy and restriction of output
will ensue, since producers cannot continue to sell their goods below
cost.
9. Theoretically it is possible to make A2 = B1. But practically it
is impossible to do so continuously, since it means that capital goods
must always be produced in quantities sufficient to provide a fixed
purchasing power (i. e, A2 = B1), irrespective of whether this volume
of capital goods is required or not. The result would be a surplus of
capital goods, which must either be exported, in the face of severe
competition with other nations, or must be bought by home producers, in
which case they become B1 costs in future consumers' goods.
10. Add to this problem the activities of the scientist and the
engineer. Their inventions result in reducing labour costs and
increasing plant charges. As a result B costs are always increasing
relatively to A costs. In a primitive community B costs are very small
compared to A costs, but in a modern industrialized nation B costs are
not only large relatively to A costs, but are continuously growing.
11. If B2 is expanding relatively to A2, and A2 = B1, which is
expanding relatively to A1, it follows that B2 is expanding rapidly
relatively to A1. By adding A2 to each side of this latter statement we
see that A2 + B2 is expanding rapidly relatively to A2 + A1. Therefore,
loans to finance capital development (A2 + B2) cannot possibly come out
of savings from A2 + A1, the total national income. They can only be
found by creations of bank credit.B
Appendix A may perhaps be criticized as giving too rigid a view of the present situation, i.e.,
not emphasizing enough the TIME factor and the comparison of the two
rates of flow; the flow of incomes to individuals and the flow of prices
on to the market, both of which are continually changing.
Probably the best exposition of this difficulty is the booklet, The New and the Old Economics,
by C. H. Douglas, being an answer to criticisms by Professor D. B.
Copland of Melbourne University, Australia and Professor L. Robbins of
the University of London. This booklet was first published in 1933 by
Messrs. Brown, Prior & Co. Ltd. of Printcraft House, 430 Little
Bourke Street, Melbourne, Australia, but has since been reprinted in
"The Social Crediter" of July 10th and 24th, 1954. (K. R. P.
Publications Ltd., 245 Cann Hall Road, Leytonstone, London, E. l1.).
It would be more satisfactory if Appendix B contained a précis of The New and the Old Economics.
But an attempt to compress Major Douglas's booklet would not do justice
to his closely reasoned argument. And the inclusion of the whole
booklet in this Appendix would have made this pamphlet unwieldly.
"The problem of Social Credit is: How do we bring existing
institutions under control? The objective is that they shall be free
within their function and powerless outside it." - C.H. DouglasInternational Banking and human sabotage
Finance
& the Environment

About Me

Robert Searle was educated in Windsor at the Royal Free, the Tutorials, and East Berkshire College. He is the originator of two major "work in progress" Paradigms known as Transfinancial Economics (TFE), and Multi-Dimensional Science (MDS).The former believes that new unearned money could be electronically created without serious inflation notably for key environmental, and
socially ethical projects. Multi-Dimensional Science though presents an unique "scientific" Methodology by which claimed psychic, and spiritual "phenomena"could possibly be "proved".
Apart from the above, Searle has proposed the development of the Universal Debating Project, an interactive "encyclopedia" of virtually "all" pro, and con arguments for practically any subject in the world.He is the creator too of a tribute blog on the musician, and broadcaster David Munrow (1942-1976), and a pioneering one on Contemporary Early Music.Furthermore, he has a very large audio-visual collection of Medieval, and Renaissance Music (manually created as Searle8), and has an "unusual" musical project involving improvisation which could also open up a "new" approach to music.